Tuesday marked the fifth day of fighting between Israel and Iran with the risk of a widening conflict dampening investors’ risk appetite.
With tensions running high, U.S. crude rose 2.26 per cent to $73.39 a barrel for West Texas crude — the U.S. benchmark oil price — while Brent crude, the European benchmark price, rose to $75.09 per barrel, up 2.54 per cent on the day.
The price of Western Canada select was trading at just under $58 U.S. on Tuesday morning — well above the low of less than $48 in early May.
The Israel-Iran conflict could further drive up prices for crude oil and gasoline. Iran is a major producer of oil and it sits on the narrow Strait of Hormuz, through which much of the world’s crude passes.
No disruptions to the global crude supply have been reported yet, although news of a collision between two ships in the Gulf of Oman sent another brief jolt through the oil market overnight.
“This is happening at a point in time where we are less sensitive, first of all, the fact being that oil prices are still down year to date and secondly, the macro-economy is showing that financial markets are relatively resilient at the moment,” Bjarne Breinholt Thomsen, head of the cross-asset strategy at Danske Bank, said in a webinar on Tuesday.
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The volatility has also hit all the major stock markets with the Dow Jones Industrial Average, the S and P 500, the Nasdaq and the TSX composite index all down slightly in Tuesday morning trading.
The Canadian dollar traded for around 73 cents U.S. Tuesday morning, down from Monday’s close at $73.76.
Gold prices backed off slightly on Tuesday, trading at just under $3,400 U.S. per ounce around noon, after jumping to $3,424.24 on Friday as investors sought a safe place to put their cash. That’s about $1,097 higher than a year ago.
Investors will also be keeping an eye on the U.S. Federal Reserve when it meets on Wednesday to discuss whether to lower or raise interest rates.
U.S. President Donald Trump has been critical of chairman Jerome Powell for not cutting interest rates.
The nearly unanimous expectation among traders and economists is that the Federal Reserve will continue to stand pat as it waits to see how Trump’s tariffs affect the American economy.
“One thing that settled the markets earlier this year was the independence of the Fed (Federal Reserve) and the fact they would not be influenced, but data-driven,” said Matt Rubin, chief investment officer at Cary Street Partners in Richmond, Va.
“Jerome Powell is going to continue to express that they are focused on data at this point and that data does not warrant a cut.”
If oil prices remain elevated in the long-term, they could be a blessing for Alberta’s provincial budget, which was forecasting a $5.2-billion deficit on the expectation that oil prices would average about $68 per barrel.
Each $1 increase in the price of oil is predicted to increase provincial government revenues by about $750 million.
— With files from Reuters and The Associated Press
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